"Legal Rights to Assets in Case of Bankruptcy"
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One big advantage of loaning an entity some money through a fixed income security debt obligation such as a bond, is that they have the legal duty to pay you back.
Of course, not everybody who owes money does pay it back. Fortunately, businesses and (most) governments do intend to pay it back (unlike some individuals), and make a good faith effort to do so. Yet we know that is not always enough.
Sometimes they run into financial problems.
Since you've made a legal loan to someone, you have legal rights in regard to this in case the loaner stops making payments
You are in line to profit from any legal action regarding a bankruptcy or insolvency -- just as your mortgage company has the protection of foreclosing on your house if you stop making your mortgage payments.
Of course, when you loan your money, you hope to get it back without any fuss or hassle, just as the mortgage company doesn't want to foreclose on anybody's house. But it can and does happen.
In contrast, if you buy shares of stocks, you are an owner of the company and if the company goes into bankruptcy you have no legal claim to any of its assets
Now, it's true that when a company goes into bankruptcy, a sizable amount of money is going to go to the lawyers on all sides. Still, companies have assets -- from office buildings to fork lift trucks -- and if they continue to operate under a court's supervision to turn the business around, you as a creditor to the company are eligible for some amount of the money they owe.
If a company is liquidated, meaning that all assets are sold off to the highest bidder, you'll get your proportionate share of the proceeds.
You may not get $1 back for every dollar owed to you -- but you have the legal right to something.
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